Once More With Feeling: Paid Software Doesn't Mean A Company Treats You Any Better Than Free Software

from the kill-this-myth dept

A few months back, we wrote a post about how there was this idea gaining steam that somehow a fee-based service (such as a fee-based Twitter clone) would likely result in better service for users than a free one, in which revenue was paid by other third parties (advertisers and others). While I understand why the idea is compelling, it’s hogwash. There are plenty of examples of companies who you pay who still treat you like crap (think: pay TV providers, mobile phone providers, airlines, etc.). The simplistic argument is that when users pay, the company’s interests and the consumers’ interests are “aligned.” But that’s not true. The company’s interests remain to get more money out of you, and your interest (generally speaking) is to not have to pay that much more money (there’s more to it than that, but…). Furthermore, the idea that a service that shoots for volume via free services, and then supports it with third party revenue still has tons of incentives to treat users right: because if they don’t, those users go elsewhere, and the third parties no longer want to pay. Yes, there are some exceptions on both sides, but the idea that one automatically leads to better service than the other just doesn’t seem supportable.

And yet… we’re still seeing people arguing this. The latest is from Alexis Madrigal at The Atlantic — someone I tend to agree with more often than not. But, this time he falls into that same simplistic argument without thinking through what he’s saying. The post complains about Instagram’s overhyped plan to change its terms of service, meaning that your photos might be associated with advertisements (which they later backtracked), and then quotes someone’s silly, misleading and inaccurate “chart” about why only companies that make money directly from users should survive, and then assumes that all of that is true:

Truly, the only way to get around the privacy problems inherent in advertising-supported social networks is to pay for services that we value. It’s amazing what power we gain in becoming paying customers instead of the product being sold.

Instagram has, what, 100 million users? If they got $5 a month from 20 million of those users, they’d be looking at $300 million in quarterly revenue. That’s a nice chunk of change when you have a baker’s dozen employees. You think those guys could split more than a billion dollars a year and call it good.

Of course, this is silly, top down math that never works. Here’s what would actually happen in the scenario described above. If Instagram started charging $5/month, within two months, the vast majority of those 100 million users would have moved on to another competing service that does essentially the same thing for free. While I’m sure that some percentage (way, way, way, way, way below the 20% that he posits) would pay, the value for them would actually decrease since so many fewer people would be using Instagram. And, before too long, they would stop paying, because all their friends were using some other free service that does the same basic thing. And getting much more value out of it.

Yes, there are some services worth paying for, but it’s ridiculous for people (especially those as knowledgeable and thoughtful as Madrigal) to fall for this silly claim that somehow “paid” online services automatically function better and treat users better than unpaid services.

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Companies: instagram

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Comments on “Once More With Feeling: Paid Software Doesn't Mean A Company Treats You Any Better Than Free Software”

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Jay (profile) says:

Cognitive dissonance?

Wow… I mean I haven’t paid Google directly with a dime and yet they continue to grow. Think about why people want to push for more broadband content at faster speeds. It’s because the current crop of CEOs don’t want anything more than their short term cash cow that is sure for a massive disruption.

And yet, Google continues to have most of its success based on offsetting better products at a cheaper price than the alternatives and relying on more public infrastructure than private investments.

The fact remains that the market for growth has changed rapidly in the last few years. But to ignore that twitter, google, and a dozen other brands don’t get paid directly its a stunning omission from anyone making an argument about the efficiency of different business models.

Ninja (profile) says:

Re: Cognitive dissonance?

I pay for extra space on Google Drive (although I’m dropping it since my ISP can’t cope with the upstream needed to work properly – and yes, I’m moving ISPs as soon as I can to solve the problem).

And yet I use pretty much everything else free of charge. While I do find some advertising rather annoying they’ve been doing a nice job so far. However if they decide to charge for their mail I’ll just move back to Yahoo, Live or whoever offers free mail. So in the end it’s better for Google to remain free with a few extra perks charged…

out_of_the_blue says:

Re: Cognitive dissonance?

Geez, sonny, have you NEVER heard of “free” television using advertising revenue? You write as though born yesterday, when “soap operas” and nearly all broadcast entertainment* has used this model for at least 80 — that’s EIGHTY — years!

[* PAID models have worked too, for Muzak (elevator music) and some other special services.]

out_of_the_blue says:

So... You're saying people would rather get it free...

YET you constantly run pieces about “pay what you want” tests that you then use to “prove” that people WILL pay for what they could otherwise get for free…

YOU ARE TOTALLY INCONSISTENT. Mike, that’s all there is to it.

A special talent: where the ordinary person would write “adverse publicity” and be understood…
Mike “Streisand Effect” Masnick makes you take a link and spend a minute JUST to learn HIS term!

Cory of PC (profile) says:

Re: So... You're saying people would rather get it free...

You know… I love their idea of doing the “pay what you want.” Tell you what, once I find a way to start my stuff like what they’re doing (and get some original stuff up)…

YOU’RE the only one that’s going to be paying for it! No freebies, just straight up paying… and not that cheap either!

Anonymous Coward says:

Heck, just this week I had a very good example of what’s discussed in this article.

I work for two companies, but since one is a branch of the other I get paid for by one to do work at both. At my “lesser” job my duties are more clerical (with a little of my usual IT related work thrown in once in awhile). This past week the office manager at my main job was adamant that the administrator at the other office use Outlook (in conjunction with her Yahoo email, since she refuses to change to any other email service). Well, while attempting to set it up to work properly I discovered that Yahoo doesn’t allow forwarding (to things like Outlook) without it being a “Premium” Yahoo account, for which you pay a $19.99 yearly fee. To enable POP3/IMAP access, basically. Something Gmail (Google) already has, for free. I pointed this out but she refused to change and said to just pay the fee. I did so and set everything up and it works and all that.

Then, just to prove a point, I showed her how I have my Gmail account setup on both my cell phones (Nexus S 4G with Sprint and Nexus 4 with T-Mobile) AND my tablet (Nexus 7 WiFi only model) AND then to further prove a point setup my Gmail account in both Outlook and Thunderbird on my personal laptop (since when I’m at home I just fire up Chrome, which has me logged in). She was amazed, then even more amazed that I was able to do all of this for free, yet still felt that Yahoo was the better option (because she paid for it). I shook my head in befuddlement at the thinking, but hey to each their own.

In addition, since I just got my Nexus 4 yesterday I went about setting up my Google Voice account on it (and setting up my Google Voice Voicemail on it). Works much better than T-Mobile’s offerings and is also free. I can screen and record calls through it, as well as make conference calls. I get access to my voicemail online (in addition to receiving transcribed text messages and emails of any voicemails I have left). I also get access anywhere I have web access (assuming I don’t have my phone on me). All this for free. Yet no one I know outside of a very small, techie type few (most of whom I only know through Google+, but who are local people) uses this (Google Voice).

Paid products do not equal better ones. Simple as that. And we need to inform people of this misguided notion.

John Fenderson (profile) says:

What I pay for

When I pay for internet services, I do so not because I want to get better service — I generally assume that the service I get will be identical to the free version — but because I want to eliminate tracking and advertising.

Quality of service rarely enters into it. If the service is bad, I’m not using it regardless of whether or not its “free”.

crade (profile) says:

Software or Service

The question of whether to use windows or linux includes the question of whether to use the update services (and whatever other services) that come with windows or the update services that come with linux.

Since we allow software and service to be locked together, as in the case of the emails and instagram, they basically have to be compared together against alternatives when deciding the value you get out of them.

Anonymous Coward says:

Aaron should be notified of that.

For those who don’t know Aaron sold PC’s as “rent to own” but put spyware on all items sold and spied on the customers going so far as to record video and audio from inside the homes of people, the software was installed for security purposes but apparently managers had other plans for it.

Further we have ISP that although they get paid by customers have zero alignment with their clients interests as showed by a recent study.


Eponymous Coward says:

We do pay for service...

In some cases it does make a lot of sense to pay cash for a service, but those cases are usually limited to services that provide a product that is not user created. This is the distinct differance between Instagram and say over-the-air TV or a free newspaper. In reality we do pay for platforms like Instagram, but instead of cash we pay in our time by providing content (value) and making the service better (valuable). The simple math is that without our time these platforms like Instagram, Youtube, Facebook, et al. are worthless. And they should take that into consideration when thinking about converting to a pay service for in the Internet age our time is more valuable than money. I hope they’d rather retain the real worth in their service instead of cashing it in for a paltry couple-of-hundred million dollars…

Anonymous Coward says:


You can set it up but they’ve been making changes lately that cause it to not function properly. It wouldn’t work on her Android phone in the stock email app, she had to install the Yahoo one. And the main point was the Outlook integration, it wouldn’t work at all UNLESS you paid for a “premium” account.

The point I was trying to prove was just that I could setup my Gmail on multiple devices AND Outlook/Thunderbird with no difficulty or need to pay for a “premium” account.

nasch (profile) says:


The Outlook thing is definitely an issue, but I don’t find it particularly compelling to note that Google’s operating system is better integrated with Google’s mail than with a competitor’s mail. I’m also not sure what reason there is to want to use the built in email app rather than Yahoo’s app, unless you’re really really advertisement-averse.

With all that said, I’m still not arguing that Yahoo is better than gmail, I would say it’s a wash at best. If you use Android devices, the only reason not to switch to gmail IMO (and the reason I haven’t) is that I just don’t want to switch the address I’ve had for a long time, and don’t want to pay to forward my mail. That’s a fairly precarious position for Yahoo to be in since I think lots of people don’t think anything of changing addresses. They have to stay on their toes and not do anything stupid. But I’m also kind of validating their strategy since I’m still seeing their ads on Android (not really paying attention to them, but seeing them).

Anonymous Coward says:

Re: Re:

Ah true. I think we kind of misunderstood each other. I’m not saying Google’s Gmail offering is better per se, I’m just saying that it lets you do more for free as opposed to Yahoo. (And by that I refer to the Outlook integration, especially since most businesses use Outlook.)

But yeah, I get where you’re coming from. I am not shy about changing email addresses, but I prefer not to if I don’t absolutely have to.

My only issue was the “premium” account thing just to enable POP3/IMAP access (not necessarily forwarding). That’s pretty much free across the board with various services (Gmail, Hotmail/Outlook, etc).

The reason I mentioned the “stock” email app was because it’s just there on various devices. As opposed to installing Yahoo’s app or anyone else’s (because some of the others are just apps that basically send you to the web version of the service). That and some people try and limit the number of apps on their phones/tablets (so the stock email app is just there and used, and it’s compatible with all the major/more commonly used email services).

As for ads, I’ve honestly never seen a Yahoo one but I’m sure they’re there. Honestly, I’m rooted on all my devices and have AdAway installed. Takes care of most of the ads with a handful of exceptions (and the reason for it is not that I don’t want to see the ads but the ads actually being shown cause more battery life to be used than not having ads).

Aaron Wolf (profile) says:

The problem is advertising

Services can be just a good otherwise whether paid directly or paid via third-party ads or whatever, sure. The reason this discussion keeps coming up is because people are having a hard time putting words to what they know intuitively: advertising stinks! A world full of product placements and gimmicky sales and all these other junk? Ubiquitous ads are a detriment to our society.

The thing is: a company that accepts a business model of pushing ads in users faces is NOT a company that respects the users. They may have market pressure to still give good service, and they may be a business with mixed feelings that partly respects the users. But real respect means not shoving ads in people’s faces.

Now, a non-advertisement-focused business model doesn’t mean that the business respects users. They may be just as bad or worse on respectfulness.

The best companies treat users with real dignity, and that means minimal or no ads. But the problems with respect aren’t due to the business model. The model is just one reflection of whether or not users are truly respected.

nasch (profile) says:

Re: Re: Re: The problem is advertising

A company won’t treat you with the same level of respect as they would a customer.

Since this is exactly what the article is arguing against, I take it you disagree with Mike?

The examples of this are endless.

There are examples of certain paid services that treat users better than certain free ones. There are also examples of free services that treat users better than paid ones. The challenge is to find a causal relationship.

John Fenderson (profile) says:

Re: Re: Re:2 The problem is advertising

You are confusing me with Aaron. I was restating what I believe he was saying, not expressing my own opinion. Except for the endless examples business. I can think of lots of them.

My opinion is a bit less absolute. I don’t agree with Mike entirely on this, but I also don’t think he’s entirely wrong. I would agree with a slightly modified statement: paid software doesn’t necessarily mean a company treats you any better than ad-driven software.

Ad-driven software is virtually guaranteed to engage in practices against their users that I find abusive, such as tracking and spying.

My preference is free software, not paid or ad-driven, because my best experiences in terms of support and being fairly treated has come from that world.

nasch (profile) says:

Re: Re: Re:3 The problem is advertising

paid software doesn’t necessarily mean a company treats you any better than ad-driven software.

I think that’s exactly what Mike is saying.

My preference is free software, not paid or ad-driven, because my best experiences in terms of support and being fairly treated has come from that world.

I do like libre software, but for services it’s kind of different. Something where there’s an ongoing expense of bandwidth, power, etc., you cannot cover those expenses with volunteer labor.

Aaron Wolf (profile) says:

Re: Re: Re:3 The problem is advertising

Actually, John, you and I agree and we both agree with Mike.

I was not saying anything about who is the customer etc. I was saying that advertising is almost always manipulative and has other problems and so is usually unethical. Ads are usually awful and that’s that. The point is that I want a world without these ads. And yes, that world is the world of Free/Libre/Open software and culture, not a world of proprietary paying customers who buy restrictive licenses.

Aaron Wolf (profile) says:

Re: Re: The problem is advertising

What’s disrespectful about showing ads?
Nothing *necessarily* except that most of the time, advertising is in fact disrespectful. Ads encourage wasteful consumption, are manipulative, intrusive, create conflicts of interest, etc etc. Ads STINK. A world of ubiquitous advertising is an unhealthy world.

What people want is BOTH Free and no ads. And we can have this actually. The model is Free/Libre software and culture and such.

Practically though, a select portion of ads are perfectly ethical, they are just the tiny minority.

nasch (profile) says:

Re: Re: Re: The problem is advertising

What people want is BOTH Free and no ads. And we can have this actually. The model is Free/Libre software and culture and such.

Free/libre doesn’t work well for most of the “and such” though. If it’s rivalrous and excludable, which most of what we spend our money on is, then it’s generally not going to be free. Therefore, some kind of advertising will sometimes be necessary (or at least inevitable), even if only word of mouth. Since there will be advertising, some will inescapably be bad. If you can think of a way around this though, please expound! I would love to be wrong.

lfroen (profile) says:

Why is it limited to software?

Mike, what kind of idiotic argument is that:
>> … But that’s not true. The company’s interests remain to get more money out of you

I don’t see how this kind of “logic” is limited to software. Actually, any kind of business is about to “get more money”, which does not mean that those money are not incentive to provide a better goods/services. You probably heard about term “market competition”, right?

You idea that advertising pays better may be true for can-drop-it-right-now kind of software (Instagram/Facebook/etc), but falls apart with any more serious kind. How do you think custom ERM (for example) is paid? With ads? How about engineering/CAD?

Sometimes I think that term “freetards” is deserved.

Mike Masnick (profile) says:

Re: Why is it limited to software?

I don’t see how this kind of “logic” is limited to software.

It’s not. Nor did I suggest it was.

You idea that advertising pays better

I didn’t say it did. I said that there were a variety of business models and sometimes it made sense to do paid, and sometimes it made sense to use free.

You appear to have a problem reading.

Sometimes I think that term “freetards” is deserved.

Protip: Before acting like a total idiot, try to at least have read what is written.

lfroen (profile) says:

Re: Re: Why is it limited to software?

>> It’s not. Nor did I suggest it was.
You have problem with basic logic. Since title include word “software”, one must assume that this is somehow connected. If you think it’s not, why not call article “free stuff is better”?

>> I said that … and sometimes it made sense to use free.
What does it have to do with “who treats who better”? Yea, variety of business models, I see. And under what “business model” it make sense _not_ to treat better paying customers? Answer is there’s no such model. As you often like to point out about DRM screw-up, it makes no sense.

Mike Masnick (profile) says:

Re: Re: Re: Why is it limited to software?

You have problem with basic logic. Since title include word “software”, one must assume that this is somehow connected. If you think it’s not, why not call article “free stuff is better”?

Because the other articles were talking about software. That’s all. And nowhere did I say that “free stuff is better.” I said that just because something is paid, it doesn’t make it better. That also means it doesn’t make it worse.

What does it have to do with “who treats who better”? Yea, variety of business models, I see. And under what “business model” it make sense _not_ to treat better paying customers? Answer is there’s no such model. As you often like to point out about DRM screw-up, it makes no sense.

The whole debate started because some people said that customers are treated better with paid software/services. I pointed out that’s not automatically the case. I did NOT (as you keep insisting) say that free was *better* just that there’s no evidence that one leads to better treated users than the other.

Hanno (profile) says:

And if you pay it gets worse (?)

One more thing that makes this argument absurd: He seems to assume that if you pay, privacy issues get better. That doesn’t pass a test of reality.

The worst I can think of at all when it comes to privacy handling are the various DRM systems used by the gaming industry. The EFF has once called “Warden” (system of WoW) Spyware, which is an accurate description of what most DRM systems by computer games today are. And they are amongst the best payed computer services today.

lfroen (profile) says:

Re: And if you pay it gets worse (?)

>> And they are amongst the best payed computer services today
False. Probably due to ignorance. They are _worst_ paying customers. Best one are organization who order customized systems ERM,control,engineering,IT and so on.
After those come software for various embedded systems – from stupid Toys-R-Us talking bear to missile control. Those are rarely pirated.
Next good paying are OEM’s they all pay for preinstalled OS and other stuff (not trialware, though).

So please, stop spread this insanity about “games are best/biggest/largest customer”. They (games) are _entertainment_, similar to (and competing with) movies.

Anonymous Coward says:

Re: Re: And if you pay it gets worse (?)

call of duty, modern warfare 2 was the single largest opening ever of any form of media. they did more money in that one moment than most engineering firms make in a lifetime.

gamers buy stuff, despite your thoughts that we are all just pirating “freetards”. we line up to buy stuff. we wait, we preorder, we will go out at midnight to get it, take off work. we buy collectors editions, we buy swag, we put stickers on our cars and get shirts.

the fact is that, as a business, no matter how much money you make on a very large system, if you only have 4-7 customers, you are always in danger of failure. sure the system Toys R Us uses will be expensive, but they can, at any moment, choose a different one.

if you have 4-7 MILLION customers, it is a lot harder to fail. you have a buffer that you can work with. sure you could make a game that is so bad that you lose your base, but hopefully you are a good game programmer (or car maker, or coffee cup filler, or whatevers).

and yes, games are entertainment. and there is A LOT of money in entertainment, because we, as a species, likes to be entertained.

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